Microsoft closes the book on its Nook partnership with Barnes & Noble

A Nook deal Microsoft and Barnes & Noble struck with much fanfare less than three years ago has deflated, after failing to achieve its lofty goals in the e-reader market.

After plunking down $300 million for an almost 18 percent stake in Nook Media in April 2012, at a stratospheric valuation of $1.7 billion, Microsoft has agreed to sell back its share to Barnes & Noble, which continues with its plan to spin off the money-losing business as an independent public company.

As part of the termination agreement announced Thursday, Microsoft will receive $62.4 million in cash and 2.73 million shares of Barnes & Noble common stock, plus payments of undetermined amounts for several years contingent on Nook Media sales.

When the companies struck the partnership, they said it would "accelerate the transition to e-reading" and have a strong focus on Barnes & Noble's sales to colleges. Initial plans back then called for a Nook application for Windows 8, which the companies said would extend Barnes & Noble's reach to "hundreds of millions of Windows customers."

However, those high-flying aspirations to revolutionize and take over the digital reading market never materialized, as the Nook business struggled to gain traction and compete against Amazon's Kindle tablets and e-readers. Barnes & Noble instead struck a deal in June of this year with Samsung for a co-branded Nook device running Android.

In the quarter ended Nov. 1, the Nook business, including digital content, devices and accessories, generated $64 million in revenue, a drop of 41.3 percent year on year. Sales of devices and accessories in particular fell almost 64 percent, while digital content sales were down 21 percent.

Barnes & Noble, which made the announcement as part of its second quarter earnings report, expects to complete the separation of its retail and Nook Media businesses by the end of August of 2015.

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